Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, May 25, 1990 TAG: 9005250220
SECTION: BUSINESS PAGE: A9 EDITION: METRO
SOURCE: Los Angeles Times
DATELINE: WASHINGTON LENGTH: Medium
But economists took some comfort in the fact that a larger than expected reduction of inventories, mostly on auto lots, accounted for virtually the whole downward revision in gross national product reported by the Department of Commerce.
They also noted that the revised statistics masked a big increase in U.S. exports and that demand for U.S. goods and services increased at a healthy annual rate of 4.1 percent signals of a possible economic rebound later in the year.
At the same time, the government reported that a key measure of inflation tied to the gross national product hit an unpleasantly high annual rate of 6.7 percent in the first quarter, up from the 6.5 percent rate reported a month ago when complete data for the quarter were not yet in hand.
But the negative numbers had been generally anticipated, and economists found much to cheer in the Department of Commerce report since inventory shrinkage in one quarter usually heralds production expansion the next.
"That 1.3 percent growth is pretty feeble," economist Bruce Steinberg of Merrill Lynch in New York said. "But with final sales up at more than 4 percent, you had a sharp inventory liquidation that suggests a considerable rebound in the second quarter . . . mostly from inventory rebuilding."
Virtually all of the downward revision in GNP was accounted for by a decline in business inventories, as manufacturers shut down production to offset sluggish sales.
Retail inventories plunged at an annual rate of $26.6 billion in inflation-adjusted 1982 dollars, with $23.2 billion of that accounted for by the troubled auto industry alone.
Economists agreed that the inventory reduction should be followed by stronger growth later this year to bring supplies more in balance with demand, both in domestic markets and overseas.
"Inventory is the key here," said Cynthia Latta of Data Resources Inc. in Lexington, Mass.
"There was a much bigger runoff reported this time than the first time around, and that should be good for production in the second and third quarters. Since there are fewer goods on the shelves than we supposed, there is going to have to be more current production."
The consensus among economists is that demand will remain fairly steady, with economic growth following a sluggish but steady path in the 2 percent to 2.5 percent range.
U.S. exports increased at an annual rate of 7.7 percent, or $11.3 billion in 1982 dollars, compared with an original first quarter estimate of 0.9 percent, or $1.4 billion. Imports increased 2.7 percent, or $4.4 billion, compared to a previously estimated decline of 2.8 percent or $4.6 billion.
by CNB